A recent research study conducted by UK-based Regulatory Technology (RegTech) scaleup, eflow Global, reveals an alarming rise in the threat of Artificial Intelligence (AI) and bots manipulating financial markets. According to responses from 250 senior compliance professionals in the finance industry, 94% believe that financial experts using AI for market manipulation is a significant challenge.
The study demonstrated that AI and bots could not only manipulate markets but also conceal their activities. A striking 75% of companies surveyed expressed concern regarding this scenario, with 21% describing themselves as 'extremely worried' and perceiving it as 'a real threat' to the future of trading.
When queried about the scale of the issue of financial professionals using AI bots to influence the market, 94% acknowledged it as a challenge, with 36% stating it to be significant. The findings also present AI as the most likely source of compliance problems in the upcoming year, as noted by 57% of those surveyed, closely followed by global economic stability, projected by 56%.
Notably, the market manipulation potential of AI was dramatically underscored at the recent AI Safety Summit, where a bot reportedly used fabricated insider information to illegally buy stocks without disclosure. Reflecting on this, Ben Parker, CEO and Founder of eflow Global, remarked that these threats are not merely theoretical but are grounded in reality, especially given the insufficiency of traditional regulatory surveillance methods in the face of evolving market dynamics.
Parker also pointed out the silver lining in the rapid technological evolution. He said, "The good news is that AI will also deliver efficiencies and advanced capabilities for both firms and regulators, with firms turning to AI and RegTech to better monitor and combat market abuse." He highlighted the need for firms to understand these algorithms' workings and the necessity for more sophisticated technology to safeguard against potential breaches.
On inquiring about their firm's investment in compliance technology to shield their organisations from the risk posed by AI bots, 92% of regulatory professionals declared having made an investment, with 41% marking this as 'significant'. The results of the comprehensive survey, including a deep dive into the challenges faced by regulated companies across global markets, will be detailed in the forthcoming report, 'Global trends in market abuse and trade surveillance', releasing in early February.
The phenomenon of bots wreaking potential havoc in trading environments marks a critical challenge for the finance industry from the viewpoint of risk management and market stability. As AI continues to play an increasing role in trading, its potential for abuse also becomes a pressing concern that requires balanced and timely management.